Mastercard on crypto: 'Can't run fast enough to get into this space'

For Mastercard, it's not enough to simply seek a role with cryptocurrency payments. The card network wants to make sure it's considered an indispensable partner, particularly when it comes to the security of those transactions.

As cryptocurrency and newer assets such as nonfungible tokens change payments and how people invest, there will be a need for more "powerful" intelligence to ensure the cryptocurrency economy has the same level of trust as traditional payment methods, according to Mastercard.

"A lot of people are rushing to get into crypto fast and these questions aren't being answered," CEO Michael Miebach said during Thursday morning's earnings call. "Crypto is always an exciting topic. There's a lot going on and we have a role to play."

Mastercard recently closed its deal to acquire CipherTrace, which was announced in September, part of a series of moves it has made this year to build a cryptocurrency business. Among other things, CipherTrace helps clients mitigate cryptocurrency risk.

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Cryptocurrency has long suffered from the perception that it's a venue for money laundering and other types fraud, and Miebach said the CipherTrace acquisition will allow Mastercard to add services that address cryptocurrency risk and emerging compliance issues as more jurisdictions regulate crypto.

"You have to expect that authentication will play a role in crypto," Miebach said. "CipherTrace drives compliance for crypto transactions. We can't run fast enough to get into this space."

The card brand in the past week has also announced a partnership with cryptocurrency wallet Bakkt to support incentive marketing for cryptocurrency credit and debit cards.

For the quarter that ended Sept. 30, Mastercard reported revenue rose 30% year over year to $5 billion and earnings per share rose 37% to $2.37. Those numbers beat analyst projections of $4.95 billion and $2.19 per share.

Mastercard and Visa are incrementally building products and services that support cryptocurrencies, stablecoins and other digital assets. Mastercard in February said it would support cryptocurrency transactions on its network, though its posture has leaned more toward stablecoins (which peg their value to government-issued money) than volatile cryptocurrencies such as Bitcoin. It more recently made an initial foray into non-fungible tokens (NFTs), or digital assets that can represent art or other content.

The card brand has also expressed interest in working with governments that are considering central bank digital currencies, connecting governments with financial institutions to manage disbursement. "We will make our network ready if and when a government is ready with a digital currency," Miebach said.

During the earnings call, Miebach said the company's deal to acquire the Danish company Aiia is a key to its open banking strategy. Aiia provides an application programming interface connection between more than 2,700 banks in Europe and a base of payment and fintech clients. Financial terms of the Aiia deal, which was announced in September, were not disclosed.

In 2020, Mastercard acquired Finicity, which Mastercard has used to expand its open banking platform and expand financial services through real-time access to data, which is part of how banks and fintechs share information to drive open banking connections, allowing consumers to use a single app to access financial services from varied providers. Mastercard plans to blend technology from both Aiia and Finicity to power data sharing and open banking in Europe and North America.

"Aiia will complement our existing open banking assets," Miebach said. "This will support credit decisions, scoring, improvements in use of account information and payment applications across markets."

Miebach provided an update on Mastercard Installments, a buy now/pay later product the card brand debuted in late September. Mastercard Installments uses Finicity technology to help pre-qualify borrowers for installment loans. The service launched with Barclays PLC in the U.S., Fifth Third Bancorp, FIS, Galileo, Huntington Bancshares, Marqeta, SoFi and Synchrony in the U.S., and with Qantas Loyalty and Latitude in Australia.

Similar to Visa's BNPL strategy, Mastercard hopes to apply its network to deliver BNPL to merchants at scale, minimizing the work required to support installment lending.

"Buy now/pay later is an exciting space," Miebach said. "We have a strong lineup of bank partners. The thought is to have it built into our network delivered with no hassle for merchants and lenders at the point of sale."

The card brand additionally reported domestic spending in the U.S. has improved despite the broader supply chain issues that caused the U.S. to report lower-than-expected GDP growth for the most recent quarter. U.S. retail sales were up 5% from 2020 and 12% from 2019, reflecting both in-store and e-commerce strength, according to the card brand, which also noted the outlook regarding the pandemic has improved as more travel corridors opened.